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Oil Drops a Second Day as Europe Crisis Threatens Demand

26 Jun 2012

Oil was little changed in New Yorkafter a storm avoided the Gulf of Mexico’s energy-producing area and amid speculation European leaders will fail to stem its debt crisis that threatens to curb fuel demand.

Futures traded below $80 a barrel for a fourth day, near an eight-month low, after Tropical Storm Debby was forecast to bypass the western Gulf and oil companies began returning workers to platforms. Germany’s Chancellor Angela Merkelhardened her resistance to sharing euro-area debt, while HSBC Holdings Plc cut its growth forecast for China, the world’s second-biggest crude user. A government report tomorrow may show U.S. gasoline stockpiles rose for the third time in four weeks.

“Market sentiment remains negative, focusing on slow demand and ample supply,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “The supply risk that supported oil is fading as production resumes in the Gulf of Mexico.

Oil for August delivery fell as much as 50 cents to $78.71 a barrel in electronic trading on the New York Mercantile Exchange and was at $79.02 as of 1:07 p.m. in London. The contract yesterday slipped 55 cents to $79.21, the lowest close since June 21. Prices have fallen 23 percent this quarter, the biggest drop since the final three months of 2008.

Brent Gains

Brent crude for August settlement rose 46 cents to $91.47 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $12.43, compared with $11.80 yesterday.

Investors should sell Brent in favor of WTI after the difference between the two grades widened, according to Dennis Gartman, author of the Suffolk, Virginia-based Gartman Letter.

“This we think is the time then to sell Brent and buy WTI, having watched as the spread has been narrowing almost relentlessly and still likely to make its way toward parity, if not beyond, remembering that Brent sold for many years at a $1-to-$2-a-barrel discount to WTI,” he wrote today.

Tropical Storm Debby will move over northern Florida in a day or two before weakening to a depression and re-emerging later this week in the Atlantic, the National Hurricane Center said in a 5 a.m. Miami time advisory.

Weather forecasters initially said there was a chance the storm would pass through the heart of the U.S. Gulf’s energy-producing area, home to 29 percent of oil production and 40 percent of refinery capacity. Companies including ConocoPhillips and BP Plc had halted 44 percent of oil and 35 percent of gas output in the Gulf of Mexico, according to the U.S. Bureau of Safety and Environmental Enforcement late yesterday.

EU Summit

Germany rejects the idea of joint liability for European debt, Merkel said at a conference in Berlin yesterday, as Spainannounced it would formally seek aid for its banks. Moody’s Investors Service cut its ratings of 28 Spanish lenders because of the country’s sovereign-debt burden and souring real-estate loans, the agency said in a statement. EU leaders start a two-day summit in Brussels on June 28.

HSBC reduced its 2012 growth estimate for China to 8.4 percent from 8.6 percent, economists Qu Hongbin and Frederic Neumann said in a note today. Citigroup Inc. lowered its forecast to 7.8 percent from 8.1 percent in a report dated June 22, citing weaker demand for exports to Europe.

“The markets are really positioning themselves for the likelihood that we won’t see anything come out of the summit that makes a meaningful change to the balance of risk in Europe,” Ric Spooner, a chief market analyst at CMC Markets in Sydney, said in a telephone interview today.

Iran Oil Ban

The EU ban on Iranian oil imports, which starts July 1, means 95 percent of the world’s tankers may lose insurance if they carry cargo from the Gulf state as they’re covered by the 13 members of the London-based International Group of P&I Clubs.South Korea, which imports all of its crude, said today it may halt purchases from the Islamic republic after it failed to win an exemption from EU sanctions that mean tankers shipping the oil can’t get insurance.

“The looming European Union embargo on Iranian oil may support Brent as it is also affecting oil flows to other nations,” Fritsch said.

Iran’s oil exports may fall as much as 30 percent“gradually” after sanctions start in part as the nation begins field maintenances, Ahmed Ghalebani, managing director at National Iranian Oil Co., said today at a conference in Moscow.

Gasoline Stockpiles

U.S. gasoline stockpiles probably rose 1 million barrels last week, according to the median estimate of eight analysts in a Bloomberg News survey before tomorrow’s Energy Department report. Distillate inventories, a category that includes heating oil and diesel, probably increased 1.1 million barrels, while crude stockpiles declined 600,000 barrels, the survey showed.

The American Petroleum Institute will release separate inventory data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Norway’s three main oil and gas unions will meet on June 29 to discuss whether to escalate a strike over pensions that is halting about 165,000 barrels a day of oil equivalent, Leif Sande, president of the Energy Industry union, said in a phone interview today from Oslo.

The strike began on June 24 and affects offshore platforms servicing the Oseberg and Heidrun fields in the North Sea.